It is natural to turn to the richness of panel data to improve the precision of estimated tourism demand elasticities. However, the likely presence of common shocks shared across the underlying macroeconomic variables and across regions in the panel has so far been neglected in the tourism literature. We deal with the effects of cross-sectional dependence by applying Pesaran’s (2006) common correlated effects estimator, which is consistent under a wide range of conditions and is relatively simple to implement. We study the extent to which tourist arrivals from the US Mainland to Hawaii are driven by fundamentals such as real personal income and travel costs, and we demonstrate that ignoring cross-sectional dependence leads to spurious results.

The Impact of Marriage Equality on Hawai′i’s Economy and Government: An Update After the U.S. Supreme Court’s Same-Sex Marriage Decisions

The U.S. Supreme Court’s decisions in the two same-sex marriage cases have substantially increased the short-term and medium-term benefits that could accrue to Hawai‘i if the Hawai‘i State Legislature enacts legislation allowing same-sex marriages to begin in Fall 2013 or early in 2014.

Forecasting with Mixed Frequency Factor Models in the Presence of Common Trends

We analyze the forecasting performance of small mixed frequency factor models when the observed variables share stochastic trends. The indicators are observed at various frequencies and are tied together by cointegration so that valuable high frequency information is passed to low frequency series through the common factors. Differencing the data breaks the cointegrating link among the series and some of the signal leaks out to the idiosyncratic components, which do not contribute to the transfer of information among indicators. We find that allowing for common trends improves forecasting performance over a stationary factor model based on differenced data. The common-trends factor model" outperforms the stationary factor model at all analyzed forecast horizons. Our results demonstrate that when mixed frequency variables are cointegrated, modeling common stochastic trends improves forecasts.

Potential Benefits, Impacts, and Public Opinion of Seawater Air Conditioning in Waikïkï

This report provides a summary of an investigation by the University of Hawai‘i Sea Grant College Program into the viability and effectiveness of installing a seawater air conditioning district cooling system in Waikīkī. Seawater air conditioning (SWAC) harnesses the cooling properties of cold seawater to provide cool air for air conditioning purposes. In doing so, SWAC reduces the amount of electricity needed for air conditioning. SWAC is particularly relevant to Hawai‘i for two reasons: first, the proximity of deep, cold, ocean water to areas of high population make Hawai‘i an obvious location for implementing the technology; and secondly, with approximately 90% of its electricity generated from fossil fuels, Hawai‘i is the most fossil fuel dependent state in the nation. Unlike the rest of the U.S., where coal, natural gas, and nuclear power are called upon to meet a substantial proportion of the electricity demand, Hawai‘i relies heavily on residual fuel oil (the by-product of refining crude oil for jet fuel, gasoline, and other distillates). As a result, Hawai‘i has very high electricity prices compared to the rest of the country. SWAC has the potential to both cut the cost of air conditioning and reduce the amount of harmful emissions that are released as a by-product of generating electricity from fossil fuels.

Seawater air conditioning works by pumping cold (44-45°F), deep (1,600-1,800 feet) seawater into a cooling station (Figure 1). Here, the cold seawater is used to chill fresh water flowing in nearby pipes. The chilled fresh water is then piped into hotels for cooling purposes while the seawater (slightly warmed to 53-58°F) is pumped back into the ocean at a shallower depth (120-150 feet).

Sustainable Development and the Hawaii Clean Energy Initiative: An Economic Assessment

The connection between the emerging field of sustainability science and the economics of sustainable development has motivated a line of interdisciplinary research inspired by the notion of “positive sustainability.” This notion is founded on three principles or pillars: (1) adopting a complex systems approach to modeling and analysis, integrating natural resource systems, the environment, and the economy; (2) pursuing dynamic efficiency, that is, efficiency over both time and space in the management of the resource-environment-economy complex to maximize intertemporal well-being; and (3) enhancing stewardship for the future through intertemporal equity, which is increasingly represented as intergenerational neutrality or impartiality. This paper argues that the Hawaii Clean Energy Initiative (HCEI) fails to satisfy all three pillars of sustainability, and consequently fails to achieve the "sustainability criterion" put forward by Arrow, Dagupta, Daily et al: that total welfare of all future generations not be diminished. HCEI shrinks the economy, contributes negligibly to reduction of global carbon emissions, and sparks rent seeking activity (pursuit of special privilege and benefits) throughout the State of Hawaii.

The Impact of Same-Sex Marriage on Hawai‘i’s Economy and Government

This report provides quantitative and qualitative measures of the impact of same-sex marriage on Hawai`i’s economy and government. We find that marriage equality is likely to lead to substantial increases in visitor arrivals, visitor spending, and state and county general excise tax revenues. We estimate that fewer than 100 spouses will be added as beneficiaries to public and private employer-provided health insurance plans. The size of the gains from marriage equality depends critically on upcoming rulings by the U.S. Supreme Court on the constitutionality of California’s Proposition 8 and the Defense of Marriage Act.

A theory of payment for ecosystem services (PES) pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices. Since ecosystem services are generally interdependent, this requires joint optimization across multiple resource stocks. We develop such a theory in the context of watershed conservation and groundwater extraction. The optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners, financed by efficiency prices of groundwater set by a public utility. The theory is extended to cases where land is publicly owned, conservation instruments exhibit non-convexities on private land, or the size of a conservation project is exogenous. In these cases, conservation investment can be financed from benefit taxation of groundwater consumers. While volumetric conservation surcharges induce inefficient water use, a dynamic lump-sum tax finances investment without distorting incentives. Since the optimal level of conservation is generated as long as payments are correct at the margin, any surplus can be returned to consumers through appropriate block pricing. The present value gain in consumer surplus generated by the conservation-induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation, biodiversity, and cultural values.

China’s “Approved Destination Status (ADS) policy allows citizens of mainland China to take pleasure trips abroad on group package tours to countries that have negotiated and implemented agreements with China. In this paper, we examine the reasons for this unique preferential and incremental travel liberalization system and how it affects mainland Chinese outbound pleasure travel.

What Should Be the Appropriate Tax Base for Online Travel Companies' Hotel Room Sales?

This essay examines the current dispute between state and local governments in the U.S. and online travel companies (OTCs) over the appropriate hotel occupancy tax base for online hotel bookings. It addresses the question of what should be the appropriate tax base in designing hotel occupancy tax statutes. It argues that the appropriate tax base should be the full rental prices of the hotel rooms paid by consumers inclusive of online travel company markups and service fees and not the discounted net rates paid by the OTCs to their hotel suppliers.

The Economics of Groundwater

We provide synthesis of the economics of groundwater with a focus on optimal management and the Pearce equation for renewable resources. General management principles developed through the solution of a single aquifer optimization problem are extended to the management of multiple resources including additional groundwater aquifers, surface water, recycled wastewater, and upland watersheds. Given an abundant (albeit expensive) substitute, optimal management is sustainable in the long run. We also discuss the open-access equilibrium for groundwater and the conditions under which the Gisser-Sanchez effect (the result that the present value generated by competitive resource extraction and that generated by optimal control of groundwater are nearly identical) is valid. From the models and examples discussed, one can conclude that optimization across any number of dimensions (e.g. space, time, quality) is driven by a system shadow price, and augmenting groundwater with available alternatives lessens scarcity and increases welfare if timed appropriately. Other rules-of-thumb including historical cost recovery, independent management of separate aquifers, and maximum sustainable yield are inefficient and may involve large welfare losses.

Chinese Saving Dynamics: The Impact of GDP Growth and the Dependent Share

China’s national saving rate rose rapidly in the 2000s after declining through the late 1990s. These dynamics are not explained by precautionary motives, the institutional distribution of income, or reform related processes in general. Rather, we find a compelling explanation lies with GDP growth fluctuations and movement in the dependent share in population. We estimate a vector autoregressive model for the period 1978-2008, then generate in-sample simulations that successfully replicate the 2000s run-up in the saving rate. Our out of sample forecasts show the saving rate dropping in the 2010s as the dependency share falls and GDP growth moderates.

Published in the journal Energy Policy, this paper quantifies the relative cost-savings of utilizing a greenhouse gas emissions-weighted Clean Energy Standard (CES) in comparison to a Renewable Portfolio Standard (RPS). Using a bottom-up electricity sector model for Hawaii, this paper demonstrates that a policy that gives “clean energy” credit to electricity technologies based on their cardinal ranking of lifecycle GHG emissions, normalizing the highest-emitting unit to zero credit, can reduce the costs of emissions abatement by up to 90% in comparison to a typical RPS. A GHG emissions-weighted CES provides incentive to not only pursue renewable sources of electricity, but also promotes fuel-switching among fossil fuels and improved generation efficiencies at fossil-fired units. CES is found to be particularly cost-effective when projected fossil fuel prices are relatively low.

The Effect of Minimum Drinking Age Laws on Pregnancy, Fertility, and Alcohol Consumption

Analysis of micro-level data reveals that changes in the minimum legal drinking age (MLDA)could induce changes in the intensity and location of alcohol consumption, sexual behavior, and teen fertility. Effects on teen fertility vary across different populations. Among 15-20 year-old non-poor whites, less restrictive legal access to alcohol decreases the probability of first pregnancy and abortion. For this group, easier legal access to alcohol likely increases the alcohol consumption in bars. For black and poor white young women, the results are sensitive to the alcohol consumption restrictions measure. A decrease in the MLDA increases the probability of first pregnancy and abortion. Yet, using a more precise measure that accounts for the MLDA and the woman’s age, these results generally no longer hold.

Economic Analysis of the Proposed Rule to Prevent Arrival of New Genetic Strains of the Rust Fungus Puccinia psidii in Hawai‘i

Since its first documented introduction to Hawai‘i in 2005, the rust fungus P. psidii has already severely damaged Syzygium jambos (Indian rose apple) trees and the federallyendangered Eugenia koolauensis (nioi). Fortunately, the particular strain has yet to cause serious damage to ‘ōhi‘a, which comprises roughly 80% of the state’s native forests and covers 400,000 ha. Although the rust has affected less than 5% of Hawaii’s ‘ōhi‘a trees thus far, the introduction of more virulent strains and the genetic evolution of the current strain are still possible. Since the primary pathway of introduction is Myrtaceae plant material imported from outside the state, potential damage to ‘ohi‘a can be minimized by regulating those high-risk imports. We discuss the economic impact on the state’s florist, nursery, landscaping, and forest plantation industries of a proposed rule that would ban the import of non-seed Myrtaceae plant material and require a one-year quarantine of seeds. Our analysis suggests that the benefits to the forest plantation industry of a complete ban on non-seed material would likely outweigh the costs to other affected sectors, even without considering the reduction in risk to ‘ōhi‘a. Incorporating the value of ‘ōhi‘a protection would further increase the benefit-cost ratio in favor of an import ban.